WASHINGTON — The latest analysis of the Home Mortgage Disclosure Act, expected to be released this week, could add fuel to the campaign to create a consumer protection agency, observers said Tuesday.
Each year, the loan statistics gathered under the law extend and deepen a debate over predatory lending. In the past, the data has shown that minorities receive fewer and higher-cost loans than white borrowers, which consumer groups say is proof of discrimination, while bankers say the data does not take into account other factors, such as credit scores.
But this year, many observers are expecting the data to show an even wider discrepancy in loans to minorities because of the financial crisis, and that could give consumer advocates more ammunition as they seek to push a bill creating a consumer protection agency.
"As a result of the recent tightening of credit, denial disparity rates will significantly increase," said Andrew Sandler, co-chairman of the law firm Buckley Sandler LLC. "The HMDA data will enhance the level of concern and discussion about fair lending, and necessarily, then, will focus attention on the role of the new agency in fair lending and the need for the new agency in terms of enhanced fair-lending protection."
Banks adamantly oppose the creation of such an agency, arguing that giving enforcement authority to a new supervisor would be too burdensome.
Rep. Brad Miller, D-N.C., who co-sponsored the House bill to create a consumer protection agency, said it isn't just the banks that failed to adequately use HMDA data to improve their lending. He criticized regulators for not forcing the issue, and said it was proof a new agency is needed.
"It's not like the regulators have been all over the inequities that HMDA has already pointed out," Miller said in an interview Tuesday. "They've still been very slow to act. So having information and having the rulemaking authority and enforcement authority that can then act to protect consumers" is important.
Banking industry representatives continue to make their case that the HMDA data is flawed. Since the law does not require the collection of information on borrowers' credit scores and other information on creditworthiness, bankers argue the data does not represent their lending decisions.
"The problem with HMDA data is that the raw data that come out always seem to overstate the problem, and when people start looking at the data more intensely and say 'Why are there these disparities in lending?' there are typically reasons that come out," said Gil Schwartz, a partner at Schwartz & Ballen LLP.
Still, bankers have resisted attempts to widen HMDA's scope, citing privacy concerns.
While consumer advocates agree the data is insufficient, they say a broader set of information would reveal even deeper divides between lending to minorities versus white borrowers.
Consumer groups want to see not only credit scores, but information on compensation to brokers and lenders, borrowers' income documentation and indicators of borrowers' ability to repay loans over a longer period of time.
Under the Obama administration's proposed legislative language, the new Consumer Financial Protection Agency would assume responsibility for HMDA collection, and new data points — including credit scores — would be added to the mix.
The House bill includes much of that language, though a similar bill has not been introduced in the Senate.
Consumer groups say that the CFPA, with its broad mandate to protect consumers, would best be able to handle the new data.
"You need to address privacy concerns while adequately ensuring sunshine on fair lending," said David Berenbaum, an executive vice president at the National Community Reinvestment Coalition. "If the CFPA is created, we feel that that would be a very appropriate area for it to really develop requirements under HMDA."
Consumer groups maintain that the CFPA would take the time to better analyze and act on the HMDA data it received — a process currently left to the Federal Reserve Board.
Giving the CFPA control over fair-lending oversight would help make data collection and analysis under HMDA more effective, said Ellen Harnick, a senior policy counsel for the Center for Responsible Lending.
"The CFPA bill assumes that the new agency will be very data-based, that it's going to have a nontheoretical understanding of what is going on in the market so that the regulation is smart and focused, not overbroad, no missing the mark," she said.
But banking industry representatives are quick to dismiss any connection between HMDA and the CFPA.
"The criticism that the industry has always had of HMDA data is that it only provides a narrow snapshot," said James Ballentine, the senior vice president for political operations at the American Bankers Association. "Creating an entire agency to bring about better gathering of HMDA data is really not addressing the core issue, which is that there is trouble in the economy and individuals of all income levels have been affected by it."
Whether it ends up as part of the CFPA legislation or not, there is growing support for a revamp of HMDA. On July 15 the General Accountability Office released a report roundly criticizing practices surrounding the law. The data, the report said, offered an incomplete picture of lending and the bank regulators charged with investigating individual banks based on their HMDA statistics pursued cases unevenly.
"You have similar institutions being treated differently" by different regulators, said Orice Williams Brown, the GAO's director of financial markets and community investment. While the GAO team working on the report had not considered the possible effects a consumer protection agency could have on HMDA, there was no question that better fair-lending oversight in some form was needed, she said.
"It is important, as Congress begins to think about this, that they take steps to help ensure that consumers are being adequately protected," Brown said. "Fair-lending laws should be part of that effort."
